Functions of Money and Federal Reserve System

This set of flashcards covers important concepts related to the functions of money and the Federal Reserve system.

Medium of exchange, unit of account, store value.

Three functions of money

Liquidity

An asset that is easily converted into cash.

Includes currency and checkable deposits.

M1

Includes all of M1 plus mutual funds, deposit accounts, and small time deposits.

M2

Currency held by the U.S. Treasury or Fed Reserve banks and checkable deposits of the federal government.

Exclusions from M1

The president and approved by the senate

Who selects the board of governors?

There are 7

Number of Board of Governors

14 years.

Term limit for Board of Governors

There are 12

Number of district banks

FOMC

Federal Open Market Committee.

Consists of 12 members, including the Board of Governors and the NY district bank president.

FOMC Composition

Our nation's bank, the bankers bank, the lender of last resort.

Other names for the Federal Reserve Bank

Issue currency, set reserve requirements, lend money to other banks, provide check collection.

Functions of the Fed

Fractional Reserve System.

What is this Excess Reserve System called?

The amount remaining after the required reserve has been set aside.

Excess Reserves

Fed Loan Rate

The rate at which the Fed loans to banks is called the discount rate.

Set reserve requirements, set discount rates, set interest on excess reserves, buy and sell government bonds.

Four Monetary Policy Rules

New York Fed

Where are the Federal Open Market Operations conducted?

9

How many people sit on each district bank board?

Selected by local district banks bankers

Class A

Selected by district banks, non bankers

Class B

Selected by the board, nonbankers

Class C